Executive Summary
Operation management is a branch of management which deals with purchasing and inventory management. It also touches on design and overseeing various business operations. It is concerned with the steps that are necessary to supply chain management.
Viverra Motors is a company that had committed some essential business operation errors. In order to circumvent these challenges the company’s purchasing and inventory systems should be adjusted. These adjustments will have far reaching effects on the future development of the company.
The recommendations that will be provided in this paper include improving transportation and logistics, purchasing and inventory management. However, first of all, the company should reduce new acquisitions.
In order to do this, the company should identify areas of competency and pay more attention to these areas. The company can also outsource the services that other companies can offer without compromising on quality.
Introduction
Operation management is a branch of business that deals with the movement of products through the production chain. It also deals with the processes involved in the acquisition of raw materials, as well as the processes that are involved into production of the end products.
Major levels of operation management are strategic, tactical, and operational. Strategic level deals with all activities and decisions that go into production chains. It involves decisions concerning size and location of plants.
Purchasing and inventory management differences
Each dealership is supplied by a different supplier and deals with different suppliers in the process of car production. Each dealership should therefore be strengthened to make decisions might have a positive effect on the process of car production.
Each supplier has its own strengths and weaknesses and the company’s dealerships should deal with the suppliers on an individual basis. As a consequence, each dealership of a company should design a unique supply chain management system to fit its current position (Cooper & Ellram, 1993).
The core areas of operation management are:
- Supply Chains—this involves the management of all aspects of management that are involved into providing goods to customers. The emphasis is laid on the processes of acquisition of raw materials to the end of a products’ life. All the stages that go into the product life cycle (introduction stage, growth, maturity, saturation and decline stages), including disposal, are considered.
- Operation Management/Marketing Interface—this is concerned with finding out what the customers like and see as important. This is necessary to produce what the customers want.
- Operation Management/Finance Interface — this is an area that comprises of the cash value of the company. It roughly estimates the financial worth of the firm.
- Service Operations — this consolidates the characteristics of services that go into production.
- Operations Strategy — this lays down the strategies the company will follow in production. It should agree with the overall strategies of the company.
- Process Design and Improvements — this manages all the innovations within the company. All the innovations are protected by this section of operation management. It also seeks financial assistance for the innovations.
All these activities can be broadly classified as follows:
- Strategic level includes such aspects
- The number, location, and size of warehousing and other facilities needed by the company.
- Development of partnerships as the desirable arrangements with suppliers, distributors, and customers.
- Creating effective communication channels.
- Controlled product life cycle management.
- Where and when to buy products.
- Agreeing all the strategies of the company.
- Tactical level suggests such actions
- Finding contracts for the company.
- Decisions involving scheduling and planning of production.
- Customer satisfaction decisions
- Transport and logistics decisions
- Knowing the competitors
- Operational level suggests
- Planning production and distribution
- Scheduling- for all manufacturing plants of the company.
- Estimating future demand.
- Managing inventory- receiving and storage of stock
- Accounting for system failures and leakages
- Weaknesses of current purchasing and inventory management
Reliance on forecasts: The current purchasing (procurement) system of the company is over reliant on forecasts which are based on the past trends. While this is a good practice, it is worth noting that the quality of the results obtained is highly dependent on the quality of data used to generate them.
Employee competence often influences the quality of forecasts. In order to solve this problem, mechanisms to train employees should be put in place.
Excessive focus on reducing costs: Viverra motors is interested in supporting its “one price – lowest price” concept. Focusing solely on this concept is a potential area of weakness. This may encourage the purchasing managers to choose price over quality.
Low priced service parts may not meet the customers’ expectations. If this happens, the customer might end up in spending more in the long run. This has the potential to damage the reputation the company has worked hard to gain. This concept is a good concept, but if not executed correctly, it can permanently damage the reputation of the company.
Unplanned acquisition: The new acquisition appears to have been hurried and not well planned. It is the fourth dealership in a metropolis of over one million people. The nature of the new dealership makes it difficult for Viverra motors to maximize profits.
The company relies on fast movement of goods and high volume of sales to make profit. The new “auto-supermarket” requires more space because it deals with more than one make of car. This can also bring undue competition to existing dealerships of Viverra motors.
This competition can arise if the new dealership will focus on the production of stock cars and service parts which are already being sold by other dealerships. Economies of scale will be hard to realize in such a setting.
Poor selection of suppliers: The system is currently relying on a great number of suppliers. This is a potential danger for the company. Each supplier has its own way of doing things and the company may suffer a setback when it has to deal with many suppliers. It may slow down the progress of the company.
Increased cost of running business: cost of running business will keep going up as the company increases the number of dealerships and products in each dealership. More products require more space. The company is already experiencing financial constraints brought in by the new dealership.
Poor location design: The metropolis has a population of one million people. There is an additional half a million people outside the metropolis (Masters, 1993).
This gives the company an estimated target customer population of one and half million people. This total population is not commensurate with the number of dealerships in the metropolis. Acquiring new dealerships will saturate the market leading to decreased volume of sales.
Possible solutions to the problems
In order to circumvent the problems mentioned above, the following recommendations should be considered.
Outsourcing: the company should outsource some of the activities that do not constitute its core business. This will enable the company to focus on key competencies while letting others do some things on its behalf. The company should identify companies that can provide services of the required quality at a lower cost.
Services such as warehousing can be outsourced. The company is experiencing shortage of space, and it means that partners should be sought to provide this crucial service. This will ensure that Viverra motors saves money that can be used to finance the core business.
Provision of service parts can also be outsourced to a reputable partner. However, since the company has gained a good reputation in servicing and repairing vehicles, it should retain it.
This aspect of the business is crucial to the company as it attracts new customers and helps retain existing customers. Outsourcing is critical to any company as it enables it to run the business effectively and efficiently.
Co-owning: instead of acquiring new businesses, the company can opt to buying some stakes in companies it is interested in. Viverra motors should have acquired some shares in the new dealership as this would have enabled it to share logistics management and inventory management responsibility.
Each partner would then bring in its key competencies and enable the dealership to move to great heights in terms of customer service and profit maximization (Lee, and Billington, 1993).
Focus on quality: the company should focus more on customer satisfaction and quality of services offered (Ketchen, & Hult, 2006). The quality of the products and services should meet or exceed customer expectations at all times. Focusing on cost of the end product only diverts attention from the customer.
This may result in a situation of self preoccupation. Customers do not want to deal with companies that are preoccupied with self image.
Just- in- time inventory management: the company has run out of space, thus it is in a great need of using innovative methods of inventory management. A lot of expenses will be reduced if the company does not hold stock for long (Cooper, Lambert, & Pagh, 1997).
Just-in-time is system of inventory management that ensures a company does not stay with any particular stock longer than it is necessary. This system enables a company to order stock just before it is needed. After stock is received, it spends a short time in the company’s warehouses thus reducing cost of warehousing and creating a room for new orders.
This system requires very accurate forecasts and reliable suppliers. If the suppliers are not reliable, then the company will not incur the cost of missing the stock. This cost can be huge and make a great damage to a company (Cohen, and Lee, 1989).
This system also ensures that the time a product spends in the supply chain is shortened. Money saved can be used to run other aspects of the business. The system will also encourage the company to invest in what the customers want and, as a consequence, minimize the wastage.
Supplier selection: Viverra motors can benefit from careful selection of suppliers. A thorough research and background check of the suppliers will enable the company to establish a partnership with reputable and reliable suppliers (Mentzer, 2001).
Some suppliers may provide products cheaply but, at the same time, with inferior quality. Some may provide high quality goods but at a very high cost. Both situations are undesirable for Viverra motors. Viverra motors should aim at striking a balance between cost and quality of products. The suppliers who are reliable are selected.
Transport and logistics: efficient transport and logistics systems should be put in place. This ensures that the amount of time spend on movement of products along the supply chain is significantly reduced (Rainbird, 2004). This will reduce operating costs in the long run.
This can either be done through outsourcing these activities or through improvement of existing systems. If necessary, the company can put in place radio frequency identification system (RFID). This system will enable purchasing managers to monitor the movement of stock in real time. However, this system may be expensive to install and run. It may require additional training for the users.
Restructuring suggestions
As Viverra motors prepares itself for the future, both current and expected customer expectations should be put in perspective. Future aspirations of the company should be in line with the expectations of its customers (Greenberg, 2002).
Viverra motors should estimate the number of customers it intends to serve in the future. This can be calculated using past customer numbers. The managers can work out the rate of annual increment in customer numbers and use it to forecast the future numbers at any particular time in the future (Houlihan, 1985).
In order to meet the current customer demands and move into the future with ease, the following structural changes may be implemented.
- Know Customer: Viverra motors needs to invest in research in order to understand its customers better. Each customer is unique but some share common traits. Investing in this research will enable the company to provide what the customers want at the right time. Customers will be divided into various customer segments or, in other words, market segments. Each segment gets unique products and attention depending on the need of customers. Market segmentation is a great marketing tool. Products are marketed differently to different groups.
- Continual Rapid Improvement: the company should continue improving its products and services to meet current customer demands. The company can invest in self improvement techniques. The improvement should be comparable with changes in customer demands.
- Unified Purpose: all the dealerships, though, representing different brands and segments of the market should have a unified goal. All the dealerships need to work together as a team to achieve a common goal. Unity purpose helps reduce potential conflicts in the company.
- Know the Competition: the company should invest in mechanisms to know its competitors. This is because modern completion fronts are in the supply chain management. Viverra motors should use this to structure its supply chain management to be in line with that of its partners.
- Focus: the focus of the company should be changed. The company should avoid focusing so much on acquisitions. It should instead shift the focus to customer satisfaction and profit maximization.
- Organize Resources: resources should be organized in such a way that the most urgent and most important obligations are met in the first place.
- Invest in Human Resources: the company should focus on hiring new staff in areas that are critical to the operation of the company (Ballou, 1992). Staff should be reduced or completely relieved of their duties in areas that the company can outsource the services.
- Maintain Equipment: the company should maintain existing equipment in order to ensure that their after sales service segment works well. The company can also invest in new equipment to boost its repair services.
- Cut Flow Time: the company should cut the time a product spends in the supply chain. This can be done through development of systems that can help minimize wastage and maximizes on the available time.
- Visibility Management: Viverra motors needs to invest in brand visibility. It should strive to be more visible in the market than its competitors. This may be translated to increased customer numbers hence increased revenue.
Conclusion
This paper is focused on the operation management that is implemented in the Viverra motors and the ways of its improvement. Having analyzed a number of researches on the given topic, as well as a Case Study, we have come to a conclusion that Viverra motors should position itself for the future. In order to do this correctly, several structural adjustments need to be implemented.
The company needs to adjust its purchasing and inventory systems to match with those of its customers. Some of the changes that have been suggested earlier in this paper include slowing acquisition. The company should instead focus on co-owning. The company should also invest in logistics and transportation systems.
References
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